Investors didn’t sell in May. What now?

Stocks closed out the month with healthy gains. The Dow and S&P 500 both rose more than 4% while the Nasdaq was up nearly 7%. And that comes on top of even bigger rallies in April. Major European indexes and Japan’s Nikkei also enjoyed solid pops in May.

Sure, stocks could head south during the summer. But the May-to-September slump that sometimes happens on Wall Street may not occur this year for several unique reasons. As Mark Hackett, chief of investment research for Nationwide, pointed out in a report at the start of May: “Little of this year has followed historic patterns.”

For one, the Federal Reserve and other central banks around the world are spending trillions on loan packages to aid hard-hit consumers, businesses and local governments.

Investors are also holding out hope that a biotech or Big Pharma firm will be able to come up with a vaccine or viable treatment for the novel coronavirus.

Finally, given the market’s massive pullback in March, it’s arguable that expectations for even more terrible economic data and weak corporate earnings reports over the next few quarters are already priced into stocks. Investors may already be looking ahead to 2021, and the possibility of a sharp rebound in global economic and profit growth. Consumers, armed with stimulus checks, may boost their spending.

Of course, Wall Street could wind up being very wrong. The V-shaped recovery many are hoping for could turn out to be a more gradual Nike swoosh.

Jittery consumers, many of whom are out of work due to the outbreak, may not use their Paycheck Protection Program money to go shopping, either. In fact, data from the US government on Friday showed that spending plunged more than 13% in April. Consumers are saving a lot more, and only a handful of big retailers with a major online presence — think Amazon, Walmart and Target — are really benefiting from any bump in spending.

And a second wave of Covid-19 cases also has the potential to derail a rebound, leading to a more drawn out W-shaped double dip recovery. The excitement about stimulus, a vaccine and the reopening of America could fade.

“The road to recovery will be long … with many two steps forward, one step back moments,” Christine Short, vice president of market research with TipRanks, said in a recent report. “It’s true that markets usually bottom well before economic indicators do … but I don’t think anyone is anticipating we’ll be back to ‘normal.'”

The US unemployment rate could peak in May

Since mid-March, more than 40 million Americans have filed for their first week of unemployment benefits. But for the past eight weeks, the number of new claims has gone down — giving investors and economists confidence that the US unemployment rate peaked in May.

1 in 4 American workers have filed for unemployment benefits during the pandemic

Coming up: Economists surveyed by Refinitiv expect to learn Friday that the US economy shed nearly 8.3 million jobs last month on top of 20.5 million jobs lost in April. That’s predicted to push the unemployment rate up to 19.7% from 14.7%.

That would be the highest US unemployment rate since 1935, during the Great Depression, according to historical annual estimates from the US government.

But the data indicates the worst may be over. Capital Economics economist Michael Pearce notes that continuing unemployment claims have fallen, an encouraging sign.

“The drop in continuing claims suggests labor market conditions are now beginning to improve again as workers are recalled to their jobs, either because their employer has received funds through the Paycheck Protection Program or because businesses have reopened,” Pearce said in a recent note to clients.

The coming recovery isn’t expected to be felt evenly across all parts of the labor market, however, and economists remain uncertain about exactly how many Americans will be hired back into their old positions.

A working paper published by the National Bureau of Economic Research earlier this month indicated that an estimated 42% of recent layoffs could result in permanent job losses.

Up next

Monday: US and China manufacturing data

Tuesday: Reserve Bank of Australia interest rate decision; Dick’s Sporting Goods (DKS), CrowdStrike (CRWD) and Zoom (ZM) earnings

Wednesday: Eurozone unemployment rate; Bank of Canada interest rate decision; ADP private employment report; US services data; Campbell Soup (CPB) earnings

Thursday: ECB interest rate decision; US initial and continuing unemployment claims; J.M. Smucker (SJM), Gap (GPS), Slack (WORK) and Broadcom (AVGO) earnings

Friday: US jobs report